NC Internet Sales Tax Debate Heats Up with Budget Crunch

I recently received an update from Brooks Raiford, President of the NC Technology Association (NCTA), on the pending NC internet sales tax legislation. NCTA has been at the forefront of the issue and quick to recognize the burdens the proposed tax will create.

Our very own Charlotte based state senator, Daniel G. Clodfelter, as the primary sponsor of the senate bill for some reason has called S 487 The Modernize Sales Tax Statutes/Digital Products Act, and I am not sure why. Senator Clodfelter can be reached at 919) 715-8331 or via email at Daniel.Clodfelter@ncleg.net to share your thoughts.



The debate is now being played out largely in the budget arena in the absence of legislative language that has been thoughtful aired and crafted. This approach demonstrates the systemic problem with our legislators in Raleigh - building a tax system piece by piece (nickle and dime) that gives rise to even more challenges for small businesses. All this does is increase the complexity of our tax laws and passes the costs to figure it out back to small businesses. I welcome modernization of the tax sytem but call a spade a spade - and this is just a horrible tweak (not modernization). Senator Clodfelter should be embarrassed by this title. No doubt, the legislators will weave something new for us to figure out. For more on my perspective, see my prior post.

As a recap (largely from NCTA), the digital tax issue currently before the North Carolina General Assembly consists of the three main parts – (1) New digital taxes on consumer items such as downloadable books, music and movies, (2) New digital taxes on downloadable software purchases, and (3) New taxes on remote sellers who pay someone in NC for referring potential customers to the seller--the so-called "Amazon tax" that has been enacted in New York.

On April 22- The State Senate Finance Committee first discussed a tax proposal that included new digital taxation without considering a specific bill. The proposal said that it was aimed at digital products purchased electronically if they are currently taxed if purchased in stores. See my prior post for details. On June 20 (Saturday) - The NC House passed a budget that appears to impose new digital taxes on the consumer items referred to above and to include the Amazon provision but does not seem to impose new taxes on business to business software purchases. The House version of the Amazon provision does not apply to sellers if their gross receipts from sales into NC via referrals by NC residents during the prior four quarters are $10,000 or less. FYI, the digital tax part of the budget bill (S 202) is section 27C.2. For an update see the legislative history here.

Business Position. NCTA and many businesses have been keen to oppose all of the tax changes. Many companies and a number of other interested parties such as the NC Chamber and many of the banks and other large industries have been especially focused on business to business software. This opposition is well grounded given the considerable complexity in unraveling the components of taxable products, services, etc.

Amazon Position. Amazon has been vehemently opposed to the tax and has threatened to end its affiliate program in North Carolina as reflected in Amazon's email above to their NC affiliates.

Consumers and iTunes users. Interestingly not a peep out of this crowd. Has Senator Clodfelter and company asked their grandchildren about this idea?

Schedule. The budget now moves to the conference process with the goal for legislators to present a document to the Governor to sign by June 30, the end of the fiscal year.